Risk-on sentiment dominating early......>

EGB SUMMARY: Risk-on sentiment dominating early Monday, with core EGBs weaker

and the Italian BTP rally continuing.

- BTPs are enjoying one of their strongest days in months, following Friday's

action by Moody's to downgrade Italy by 1 notch to Baa3, but crucially, maintain

a stable outlook.

- Dec18 BTP future is up 195 ticks at 122.14, albeit of high of 122.74 today.

- With Bunds weaker (Dec 18 future down 45 ticks at 158.95 and 10-Yr Yield up

1.6bps at 0.476%), 10-Yr Italy/Germany spread down 14.4bps at 287.9bps.

- Indeed, periphery EGBs are benefiting more broadly: 10-Yr Spain vs Bunds

spread down 8.4bps at 119.1bps; Portugal down 7.5bps at 148.4bps; Greece down

7.7bps at 381.5bps.

- Core EGB curves are bear steepening, as is Euribor, with Green and Blue

contracts off 3.5 ticks and short-end anchored.

- Thin on data Monday, though possible Italian flashpoints linger with Rome

responding to Brussels` concerns over the budget (around midday CET).

- Main event this week is ECB on Thursday.